Amazon Faces Tough Sell As Online Grocer

After conquering the online department store model, Amazon is eyeing an expansion into the world of grocery shopping. The company has been testing out an online grocery called AmazonFresh in Seattle. Today, there are reports that Amazon plans to expand to other cities around the country. But the business landscape is littered with the graves of online grocers who didn't make it. Remember Webvan? No? That's OK.

Joining us to talk about the ups and downs of the online grocery business is Bill Bishop. He runs Brick Meets Click, which provides information and consulting to the retail industry. Bill Bishop, welcome.

Thank you. Good to be here.

So it seems like the record for online grocers has been spotty at best. Why would Amazon want to get into this business? I mean, what's the risk versus gain for them?

BILL BISHOP: Well, I think the real reason Amazon wants to get into this is that it probably looks like and should be a major building block for growth. And if they can pull it off, it will propel their growth rapidly. And I think they're already growing pretty fast.

CORNISH: At the same time, it seems so hard to get people to shop for groceries online. What are some of the reasons that this area hasn't been one for growth?

BISHOP: People don't shop online mainly because it isn't worth it to them to shop online. It costs more to shop online. There's no question about that. You have to pay for the services. And not everyone has the need or the wherewithal to pay for that additional service.

CORNISH: But people are buying all kinds of things online that at one time we thought they wouldn't, right, like shoes and eyeglasses. What is it about grocery shopping that doesn't work?

BISHOP: Well, I think there are a couple of things. One is while grocery shopping can be a headache, there are some pleasures associated with grocery shopping, selecting a cut of meat or selecting produce. So there's an experience that I think people still want. And quite frankly, it's pretty darn hard to put together a distribution system that's profitable.

Grocery products are heavy and large and bulky, and there isn't that much money in the price to cover the cost of distribution. The real challenge for Amazon is being able to distribute groceries and to do that at at least breakeven so that it doesn't require a subsidy.

CORNISH: At least breakeven. That doesn't sound like an exciting business proposition.

BISHOP: It can be an exciting business proposition if you're the first person to do that. It's like being the first person on the moon. I mean, right now, very few people have done it.

CORNISH: And so why is a company like, say, Peapod been able to do well?

BISHOP: They've grown very slowly and carefully and probably have gone through a fairly long period of not being profitable before they've been able to get into profitability.

CORNISH: Now, who exactly is the market? Who's the ideal customer for this service? I don't know if it's people in urban centers, busy working people, rural people.

BISHOP: The ideal market for this are people in urban areas, probably a female professional, higher educated with the economic wherewithal to pay for the additional service and the pressure of time and stress in their lives to find it worthwhile to shift or outsource this work to someone else.

CORNISH: Bill Bishop, your online bio at your company's website says that you are known for your ability to see around corners. So what's lurking around the corner in this industry?

BISHOP: Well, on the subject of Amazon, if they are successful with AmazonFresh in the rollout, it will mean an accelerated growth for Amazon in the retail business. More broadly, grocers all over the United States are going to have to raise the bar and their game in terms of providing online services, be they delivered by mobile or tablet so that some of the same benefits of shopping online can be used by people who are shopping in the stores. And that's right in front of us right now. It just needs to be done.

CORNISH: Bill Bishop of the retail consultant Brick Meets Click. Bill Bishop, thank you so much for speaking with us.